New rules applicable to the audits conducted by the FSA
By Cristina Badea
On January 27, 2021, the Financial Supervisory Authority (“FSA”) adopted Regulation no. 4 regarding its audit activity (“Regulation no. 4/2021”) which repealed Regulation no. 11 of December 15, 2016 regarding the Authority’s periodical and unannounced audits (“Regulation no. 11/2016”). Regulation no. 4/2021 was published in the Romanian Official Gazette no. 106 of February 1, 2021, which marks its entry into force.
Enactment of procedural rules governing the permanent audit
As a brief reminder of the previous legal framework, although the FSA was empowered through Government Emergency Ordinance no. 93/2012 to conduct three types of audits (i.e. periodical, unannounced and permanent audits), only the procedures related to unannounced and periodical audits were covered by the previous Regulation no. 11/2016.
In its previous practice, the FSA would impose sanctions following supervisory activities, without a governing set of norms, which gave rise to challenges filed by the supervised entities against the measures or sanctions imposed by the FSA.
However, permanent audit is defined under Regulation no. 4/2021 as a ‘supervisory activity`,thus the confusion between the supervisory powers and the audit powers seems to persist under the newly enacted provisions.
Nevertheless, Regulation no. 4/2021 now also offers a legal framework for the conduct of permanent audits by the FSA. Such amendment was well overdue, and the insurance sector welcomes the amendment, as it provides for the tools aimed at ascertaining the lawfulness of the permanent audit and draws the limits for the authority when conducting such type of audits.
Regarding the provisions applicable to permanent audits, we mention the following:
- The permanent audit is conducted by the FSA’s specialized departments having supervisory powers;
- The supervised entities are under an obligation, according to art. 32 (3) of Regulation no. 4/2021, to provide the FSA with the requested information, and the liability for failure to do so lies with either the management of the supervised company, or with the responsible person thereof;
- the findings of the permanent audit are registered within a permanent audit report (and not a minutes of the audit, as is the case for unannounced or periodical audits);
- the insurer has the possibility to express a point of view or to raise objections against the permanent audit report, within 7 days since the receipt thereof (as opposed to the 14 working days timeframe provided for unannounced or periodical audits);
Within a maximum of 10 working days after the lapse of the time limit provided for the submission of the point of view/objections, the head of the FSA department presents the final note and his/her proposals to the Board of FSA, in view of deciding upon taking any measures or applying sanctions.
Amendments in connection to the unannounced and periodical audit
Regarding the amendments enacted in concern to unannounced or periodical audit, the following amendments are noteworthy:
- Under Regulation no. 4/2021, the step related to the communication of the draft minutes of the audit was eliminated and the audited entity is no longer required to send its point of view in relation to the draft minute. As such, the procedure following the audit has been reverted to that existent prior to the amendments brought on August 12, 2020 by the entry into force of FSA Regulation no. 17/2020;
- The introduction of the sampling procedure (in addition to the already existent sample survey), that allows the FSA to obtain a sample of data/documents/operations to audit and, eventually, to reach conclusions that may be generally applicable to the entirety of the data/documents/operations pool.
Finally, we point out that, unfortunately, the new regulation does not address the applicability of the proportionality principle within the audits led by the FSA. Consequently, while primary legislation enshrines the principle of proportionality, secondary legislation still does not provide any framework for the limits and applicability, in practice, of the principle. As such, the insurance companies are further relying on the guidelines published by the European Insurance and Occupational Pensions Authority in this respect.
For more information on how these changes could affect your business, please contact our experts.